In the Ivy league: Five reasons why supramaxes make sense

Much has been made in the maritime media of Paris Kassidokostas-Latsis’ new supramax venture, Ivy Shipping. An article in TradeWinds this week notes how the shipping scion has turned his focus away from newbuildings in tankers and gas in favour of secondhand bulk carrier tonnage. There’s nothing new, however, about Ivy’s business strategy – ostensibly, it’s a pure asset play. “Investment in dry bulk for us is not an end to itself but rather a means to an end,” Kassidokostas-Latsis said, quoted by TW. “We believe that once we have reached our target exit prices, it will be prudent to disinvest from the space and turn our attention and our resources elsewhere.”

Here are five reasons why we think the move makes complete sense:

1. Depressed asset valuesIvy has so far invested in four supramaxes with an average age of six years. Of these vessels, two are known to have been built at IHI in Japan – quality tonnage. Supramax asset values have surged over the past year from all-time low levels seen in Q1 2016, but have undergone a correction during the past month or two. A five-year-old supramax (56,000 dwt, built at a "first-class" yard) is this week valued at $15.995m, some $1.25m less than it was in mid-May, according latest assessments by the Baltic Exchange. 2. Potential for “flipping”Asset values are still low historically-speaking – there are still many of us around who (fondly) remember the boom times of pre-2008, when a second-hand supra could go for $75.0m. But a close look at recent market transactions shows owners can still make money by flipping vessels at the right time, thanks to this surging value appreciation. Times Navigation of Greece has reportedly this week sold its supra Elektra to Chinese interests for $7.5m – that’s around $3.0m profit on what it bought the vessel for in 2015 (as part of an en bloc deal). Similarly, if less dramatically, Greece’s Empire Bulkers is reported to have sold its supra Ata M for $8.0m, which (if confirmed) would net a profit of around $200,000 compared to the price paid by the company in 2015 – not a profit to be sniffed at!

3. Steady grain marketSupramaxes are often feted as the workhorse of the grains trade. Although markets for commodities like iron ore and oil have taken a blow in recent years, the grain market has been relatively resilient. The Dow Jones Commodity Index for grains shows little volatility in prices over the past year, although the index has fallen by around 50% since 2012. Likewise, supramax period rates have held comparatively flat, compared with other dry segments. What could be better than trading your ships in such a predictable market?4. Low orderbookThere’s little risk that newbuildings will exacerbate vessel oversupply in the supramax segment. The current orderbook stands at just 2.3% of the live fleet – just 50 new vessels are scheduled for delivery by 2019, compared to a live fleet of around 2,190.5. Potential for more scrappingScrapping in the supramax segment hasn’t exactly been prolific, compared to the rampant activity in other dry trades in recent years. Only 32 supras have been scrapped since 2012, which has trimmed the fleet by just over 1.0%. However, around 174 vessels (8.0% of the live fleet) are aged 15 and over, making them likely scrapping candidates, especially if owners opt to sell them for demolition, rather than fit them with costly ballast water management systems or exhaust scrubbers to comply with upcoming environmental regulations.